FW: RHB FIC Credit Markets Update - 24/5/18

 

 

Credit Markets Update

           

MGS Steepened; Trading Focused Towards Short Dated Govvies.

MYR Credit Market:

¨      Local govvies ended mixed, long yields closed higher. The front end of the curve rallied while in the belly to the longer end of the curve saw yields slightly increase. The 3y MGS rallied -1.6bps to end the day at 3.74% while the 5y and 7y MGS closed at 3.82% (+1.1bps) and 4.03% (unchanged) respectively. Meanwhile, the 10y and 15y MGS inched higher +0.7bps and +3.7bps respectively to end at 4.22% and 4.61%. The reopened MGS 06/28 will replaced MGS 11/27 as the new 10y benchmark. The MYR closed the day lower against the greenback at 3.9825/USD (-0.38%).

¨      Govvies trading volume climbed to MYR3.17bn on the back of the reopening of MGS 06/28, which is the new 10y MGS benchmark. The trading session saw about 68% of the trades came from MGS space and about half of the total trades happened in the short end where maturities ranging 2018-2021. The new benchmark 10y MGS 06/28 was the most traded with MYR815m transacted which saw yield pushed up +6bps to end the day at 4.21%. Notable trades were mainly non-benchmark led by short-dated GII 11/18 on trades of MYR605m to close at 3.35% (-5bps). The GII 10/28 remained unchanged at 4.33% on trades worth MYR150m while GII 10/18, on trades of MYR141m, traded stronger -3bps to end at 3.35%. In the MGS space, MGS 03/19, MGS 11/19 and MGS 10/19 all rallied between -2bps and -4bps to close at 3.34%, 3.49% and 3.47% after seeing MYR339m, MYR210m and MYR142m changed hands.

¨      Corporate trades rose to just under MY382m. About 48% of trades were focused on short-dated securities maturity 2018-2021, mainly AA-rated issuers and above (85% of total trades). BGSM Management Sdn Bhd on total trades of MYR80m saw BGSM 12/19 and 08/21 traded weaker to close at 4.46% (+2bps) and 4.65% (+13bps) respectively. UMWH Pnc10 on trades of MYR40m saw yield pushed up +9bps to 6.10% while GAMUDA 11/22 and MACB 08/20 both closed higher at 4.82% (+18bps) and 4.38% (+13bps) respectively after MYR40m each transacted. Meanwhile, TELEKOM 10/24 also traded weaker at 4.59% (+27bps) after MYR40m changed hands.

¨      MARC affirms Malakoff Power Berhad (MPower) at AA-IS/Sta. MPOwer is the O&M operator of its parent Malakoff Corporation Berhad (Malakoff). The rating affirmation reflects the consolidated credit strength of MPower and Malakoff, considering the significant operational and financial linkages between the two entities. MPOwer has a stable and available revenue and cash flows for the servicing of the sukuk. The rating is also backed by the adequate operating performance of Malakoff’s power plant portfolio which is subject to long term power purchase agreement (PPA) with a high credit offtaker, Tenaga Nasional Berhad. Moderating the rating is the high leverage position of the group and reliance on residual cash flows from its key subsidiaries. For 2017, Malakoff group’s revenue grew 16.9% but pre-tax profit declined to MYR588.5m due to the step-down in its subsidiary, Segari Energy Ventures Sdn Bhd’s capacity revenue and unscheduled plant outages of Tanjung Bin Energy Sdn Bhd.

APAC USD Credit Market:

¨      The FOMC meeting minutes released, hinting June rate hike. Treasuries rally across the curve with the 2y and 5y UST closed at 2.53% (-3.98bps) and 2.82% (-7.19bps) respectively. Meanwhile at the longer end, the 10y and 30y USTs saw yields pulled down -6.62bps and -5.31bps to end the trading session at 2.99% and 3.15% respectively. This follows the release of May FOMC meeting minutes which suggested the Fed is willing to allow a short term overshoot of its 2% inflation target. The minutes showed that policymakers believe the Fed is on track for a June rate hike. President Trump earlier commented on North Korea and the US-China trade talks sparked concerns on trade policies which could weigh on global growth, leading to flight-to-safety. Consequently, the USD as seen in DXY closed stronger at 94.00 (+0.42%) overnight. On the economics, Markit US PMI for manufacturing, services and composite came out slightly higher than prior month while the new home sales declined to 662k from revised 672k the in Mar.

¨      The iTraxx AxJ credit spread increased +1.2bps to 75.77bps led by financial institutions Bank of China Ltd, ICIC Bank Ltd and State Bank of India which saw spreads increased between +1bps and 1.6bps. PCCW-HKT Telephone Ltd and Swire Pacific Ltd both had their spreads higher about +1.08bps and +0.79bps respectively. The sovereign of South Korea and China saw CDS spread increase +1.12bps and +0.65bps. On the other hand, Indonesia saw spreads pull down -1.05bps, followed by Philippines saw spreads lowered -0.58bps. Export-Import Bank of China rallied -1.21bps while the subdebt of DBS Bank Ltd and China Development Bank both saw spreads eased down -1.08bps and -0.61bps respectively.

¨      Over in ratings, Fitch downgraded Zhongrong Xinda Group Co Ltd to BB-/Neg from BB/Sta. This reflects the higher-than-expected rise in Zhongrong Xinda’s leverage in 2017 which was caused by the company’s acquisition of a certain financial investment as well as elevated working capital outflow and capex. Leverage improved in 1Q18 after the company repaid CNY8.6bn in short-term debt but Fitch expects net leverage to remain above 6.0x unless management completes its planned disposal of certain financial assets and long-term equity investments.